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Environmental Policy and Inequality: A Matter of Life and Death

Listed author(s):
  • Karine Constant

    ()

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille 2 - Université Paul Cézanne - Aix-Marseille 3 - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

This paper analyzes the economic implications of an environmental policy when we take into account the life expectancy of heterogeneous agents. In a framework where everyone suffers from pollution, but health status depends also on individual human capital, we find that the economy may be stuck in a trap where inequalities persistently grow, when the initial level of pollution is too high. Therefore, we study whether a tax on pollution associated with an investment in pollution abatement can be used to reduce inequalities and to improve endogenous growth. We obtain that a tighter environmental policy may allow the economy to escape the inequality trap and hence to converge to a long-term equilibrium without inequality, while it enhances the long-term growth rate. However, if inequalities or pollution are initially too high, such a result does not hold for reasonable tax rates.

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Paper provided by HAL in its series Working Papers with number halshs-01174052.

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Date of creation: Jul 2015
Handle: RePEc:hal:wpaper:halshs-01174052
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